pk
Level 15
Level 15

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@Nkm171964 ,  sorry for the delay in responding.

 

My source for my opinion  are  IRC sections 7702, section 1297, form 8621 and instructions for the form 8621.  While I cannot find any data  on  Bajaj ULIP for purposes of the  Income Test and/or Asset Test  called out in  section 1297(b) and (e), I am pretty sure that the IRS will still classify this  as a PFIC.  I would strongly recommend you to be at least familiar with these sections.

 

Because my personal opinion is that you being a  participant in PFIC ( even though one policy  in  thousands at least ), perhaps  there should be another look at this.  Major  taxing issue with PFICs is that the income from these  ( as defined  in section 1297 and 7702 ) is viewed as ordinary income rather than capital  gain when final distribution occurs.  Sop if I assume that this policy  does not distribute/ declare  any income ( dividends, interest, gain ) i.e. none constructively received by the participant, then why not view this as an annuity with both aggregation and growth periods  being concurrent.  If this is allowed then when the policy is terminated,  (a) you recognize the whole gain as described in section 7702  as ordinary gain and  pay taxes on it per the US rules ( very similar to what you would for a pension or an annuity total distribution; (b)  this would also have the advantage  of being a foreign sourced income  and therefore  taxes paid to India would be eligible  for  FTC.  As I said this is my own opinion but I have NO case law  to support  my view.  And actual  execution of this view should cause NO loss of taxes  to the IRS or the state if one assumes that during the life of this contract, your world  income is the same or grows.  This will not be the case if  your world income decreases during this period.

 

Is there more I can do for you ?